Mythbusting: Interest payments aren’t really the Ontario Government’s third biggest expenditure item.

I often hear the line that “debt interest is Ontario’s third biggest expense after health and education”. I’m not sure where the idea came from, it may be from this National Post piece from a few years’ back. It’s one of those things that every knows is true… except, it’s not. A summary:

• What is or isn’t the third largest item depends on how you aggregate the data, so it’s not a particularly meaningful indicator. For instance, if you lumped all social services into a single category, then you could make interest payments the 2nd largest line item. But if you found a different way to slice-and-dice the data, you could knock interest payments out of the top 5.
• If you use the aggregation in the summary of the Public Accounts (which seems like the logical way to do it), interest payments are 4th, not 3rd.
• That’s noteworthy because, using the same aggregation, interest payments were 3rd, back in the early 2000s. They’ve actually fallen in rank over the past couple of decades, by the Public Accounts methodology.
• In fact, in nominal dollar terms, interest payments haven’t changed much at all this century! Ontario’s increased nominal debt has been largely counteracted by falling interest rates, leaving interest payments relatively flat.

I examined every edition of the Public Accounts that I could find online. Here’s the four largest categories of spending (if we want to classify interest payments as “spending”) since 1993–94:

In fiscal year 2002–03, the province spent $9.7 billion in interest payments. In 2017–18 dollars, these would be worth $12.6 billion, according to the Bank of Canada inflation calculator.

In fiscal year 2017–18, the province spent $11.9 billion in interest payments, a 23% increase in nominal terms from 2002–03, but a decrease in real terms. After inflation, Ontario’s interest payments have, in fact, gone down.

If we use 2003–04 as the baseline (which represents the year where Dalton McGuinty replaced Ernie Eves as Premier), here are how the four categories grew in nominal terms:

None of this is to suggest that any previous government made the right (or wrong) call when it comes to fiscal policy. But the idea that interest payments are the 3rd highest expenditure item for the province (and the implication that this was not always true) is a myth.